DBRS Finalises Provisional Ratings on the Increase of the Series 9 and 10 Notes Issued by Fondo de Titulización del Déficit del Sistema Eléctrico, F.T.A.

DBRS Ratings Limited (DBRS) has today finalised its provisional rating of A (low) (sf) on the EUR 51.5 million increase of Series 9 notes and the EUR 52 million increase of Series 10 notes (together, the Notes) issued by Fondo de Titulización del Déficit del Sistema Eléctrico, F.T.A. (FADE or the Fund).

The final maturity date for the Series 9 notes will fall on 17 March 2025 and the final maturity date for the Series 10 notes will be on 17 March 2027.

FADE is a fund created under the provisions dictated in the Royal Decree 437/2010 that regulates the amortisation framework of the tariff deficit in Spain. The purpose of FADE is to enable the electricity companies in Spain to sell tariff deficit receivables with different maturities to the Fund and issue series of Notes to be placed in the market.

The Notes issued by FADE are guaranteed by the Kingdom of Spain up to EUR 22 billion. On 27 August 2013, the Kingdom of Spain approved an additional EUR 4 billion extension of the guarantee that results in a total guarantee to the FADE programme of EUR 26 billion.

DBRS’s ratings of the Notes issued by the FADE programme are based on the obligation of the guarantor, the Kingdom of Spain, to make payment pursuant to the guarantee of the Notes’ interest and principal up to EUR 26 billion. The guarantee issued by the Kingdom of Spain complies with the characteristics of a guarantee that DBRS can give credit to according to its “Legal Criteria for European Structured Finance Transactions” methodology, with the exception of the guarantee not being binding on any successors and permitted assignees of the guarantor and not being granted in the context of a parent-subsidiary relationship. Since the guarantee is provided by the Kingdom of Spain, DBRS deems these risks to be negligible.

The guarantee can be exercised with regard to any of the series issued by FADE to cover ordinary interest and principal on the Notes. The guarantee in place cannot assure the timely payment of interest and principal on the Notes.

The ratings of the Notes are fully linked to the sovereign rating of the Kingdom of Spain. On 8 April 2016, DBRS’s Sovereign Group confirmed the Kingdom of Spain’s Long-Term Issuer Rating at A (low) and changed the trend to Stable from Positive. The trend on the ratings of the Kingdom of Spain can be assumed to be an indicator of the potential future movement of the ratings of the Notes.

FADE benefits from a EUR 2 billion credit line provided by the Instituto de Crédito Oficial (ICO). The credit line covers for any interest or principal shortfalls on the Notes.

DBRS’s ratings of the Notes address the ultimate distribution of interest and the ultimate distribution of principal on the Notes on or before the Final Maturity Date of the Fund.

ICO is the Treasury Account Bank for the transaction. The DBRS private rating of ICO complies with the Minimum Institution Rating given the rating assigned to the Notes, as described in DBRS’s “Legal Criteria for European Structured Finance” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the Legal Criteria for European Structured Finance Transactions.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

DBRS conducted a partial review of the transaction’s legal documents as the majority of the documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release.
This may be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include reports and information provided by Titulización de Activos S.G.F.T., S.A.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 26 May 2016, when DBRS assigned the provisional rating to the increase of Series 9 and 10 notes.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating:

DBRS concludes that for all the series of notes issued by FADE and rated by DBRS (the Series):

-- A hypothetical downgrade of the sovereign rating of the Kingdom of Spain by one notch, ceteris paribus, would lead to a downgrade of the Series to BBB (high) (sf).
-- A hypothetical downgrade of the sovereign rating of the Kingdom of Spain by two notches, ceteris paribus, would lead to a downgrade of the Series to BBB (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: David Sanchez Rodriguez
Initial Rating Date: 19 September 2013
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Vito Natale - Senior Vice President
Rating Committee Chair: Chuck Weilamann - Managing Director

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The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

-- Legal Criteria for European Structured Finance Transactions.
-- Master European Structured Finance Surveillance Methodology.
-- Operational Risk Assessment for European Structured Finance Servicers.

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at:
http://www.dbrs.com/research/278375.